New Ways to Plan for Long-Term Care Costs: Self-Insure & Medicaid Trusts
Planning for long-term care is harder than ever as insurance premiums rise and availability shrinks. In 2025, families are turning to two main strategies: self-insuring with dedicated assets or using Medicaid trusts for protection and eligibility. This article breaks down how each option works, their pros and cons, and which approach fits your financial situation. Proactive planning today can help you protect assets, reduce risks, and secure peace of mind for retirement.
By Michael Ruger, CFP®
Partner and Chief Investment Officer at Greenbush Financial Group
Planning for long-term care has always been one of the most challenging aspects of a retirement plan. For decades, the go-to solution was purchasing long-term care insurance. But as we move into 2025, this option is becoming less viable for many families due to skyrocketing premiums and shrinking availability associated with long-term care insurance. For example, in New York, there is now only one insurance company still offering new long-term care insurance policies. Carriers are exiting the market because the probability of policies paying out is high, and the dollar amounts associated with these claims can easily be in excess of $100,000 per year.
So where does that leave retirees and their families? Fortunately, there are two primary strategies that have emerged as alternatives:
Self-insuring by setting aside a dedicated pool of assets for potential care.
Using Irrevocable or Medicaid trusts to protect assets and plan for Medicaid eligibility.
In this article, we’ll break down each approach, their pros and cons, and what you should consider when deciding which path makes sense for you.
The Self-Insurance Strategy
Self-insuring means you create a separate “bucket” of assets earmarked specifically for long-term care needs. Instead of paying tens or even hundreds of thousands of dollars in premiums over the years for the long-term insurance coverage, those funds stay in your name. If a long-term care event never occurs, those assets simply pass on to your beneficiaries.
The benefits:
Flexibility—you decide how, when, and where care is provided.
Assets remain under your control and stay in your estate.
Avoid the risk of paying for insurance you never use.
The challenges:
You need significant extra assets, beyond what you already need to meet your retirement income goals.
Costs can be substantial—long-term care can run $120,000 to $200,000 per year, depending on location and type of care.
Self-insuring works best for those who have enough wealth to comfortably dedicate a portion of their portfolio to this potential risk without jeopardizing their retirement lifestyle.
The Trust Approach
For individuals or couples without the level of assets needed to fully self-insure, the next common strategy is using Irrevocable trusts (often called Medicaid trusts). These trusts are designed to protect non-retirement assets so that if you need long-term care in the future, you may qualify for Medicaid without having to spend down all your savings.
How it works:
Assets placed into an irrevocable trust are no longer counted as yours for Medicaid eligibility purposes.
If structured properly and far enough in advance, this can preserve assets for heirs while ensuring that Medicaid can help cover long-term care.
Important considerations:
There is typically a five-year look-back period in most states. If assets aren’t in the trust at least five years before applying for Medicaid, the strategy can fail.
Medicaid doesn’t cover everything. For example, around-the-clock home health care often isn’t fully covered, which limits flexibility.
The trust strategy is most effective for individuals who wish to protect their assets but recognize that care options may be limited to facilities and providers that accept Medicaid.
Which Approach is Right for You?
Ultimately, the choice between self-insuring and using a trust comes down to your financial position and your preferences for future care.
If you value flexibility and have the assets, self-insuring is often the preferred option.
If resources are more limited, a trust strategy can provide asset protection and access to Medicaid, even though it may reduce your care options.
The Key Takeaway: Plan Ahead
Whether you choose to self-insure, set up a trust, or use a combination of both, the most important factor is timing. These strategies require proactive planning—often years in advance. With costs continuing to rise and traditional long-term care insurance becoming less accessible, exploring these new approaches early can help protect both your assets and your peace of mind.
About Michael……...
Hi, I’m Michael Ruger. I’m the managing partner of Greenbush Financial Group and the creator of the nationally recognized Money Smart Board blog . I created the blog because there are a lot of events in life that require important financial decisions. The goal is to help our readers avoid big financial missteps, discover financial solutions that they were not aware of, and to optimize their financial future.
Frequently Asked Questions (FAQs)
Why is traditional long-term care insurance becoming less viable?
Long-term care insurance has become less practical due to rising premiums, stricter underwriting, and fewer insurers offering new policies. Many carriers have exited the market because claim payouts are large and frequent, making policies increasingly expensive for consumers.
What does it mean to self-insure for long-term care?
Self-insuring means setting aside a dedicated portion of your assets to cover potential long-term care expenses instead of paying insurance premiums. This approach offers flexibility and keeps assets under your control but requires sufficient wealth to handle potentially high annual costs.
Who is best suited for a self-insurance strategy?
Self-insuring typically works best for individuals or couples with substantial savings beyond what’s needed for retirement income. Those with enough assets can earmark funds for potential care without endangering their financial security or lifestyle.
What is a Medicaid or irrevocable trust, and how does it help with long-term care planning?
An irrevocable or Medicaid trust allows individuals to transfer assets out of their name, potentially helping them qualify for Medicaid coverage without depleting all their savings. If created properly and early enough, it can preserve wealth for heirs while enabling access to Medicaid-funded care.
What are the limitations of using a trust for long-term care planning?
Medicaid trusts must be established at least five years before applying for benefits to meet look-back rules. Additionally, Medicaid may not cover all types of care, such as full-time home assistance, which can limit personal choice and flexibility.
When should you start planning for long-term care needs?
It’s best to plan well in advance—ideally several years before care is needed. Early planning allows time to build assets for self-insuring or to structure a trust properly for Medicaid eligibility, reducing financial and emotional stress later.
